No house without equity? This premise once applied. Home acquisition without or with low equity, however, is increasingly becoming a common financing model in Germany with the help of mortgage lending.
In this form of real estate financing, the largest part of the purchase price, including ancillary costs, is externally financed. Under certain conditions, mortgage lending without large reserves is possible.
In addition, the still low-interest rates are currently attracting investors to a mortgage without equity. Especially for young families or career starters, this form of financing is a promising offer to fulfill the dream of their own four walls even without equity.
Sounds too good to be true? As you may have guessed, this form of financing does not just bring benefits.
Variants of mortgage lending without equity
In the case of mortgage lending, a distinction is made between 100-percent financing, 100-percent + ancillary cost financing and 107.5-percent financing.
100 percent financing:
In the case of 100 percent financing, the buyer pays the ancillary costs out of his own equity, since the financing only covers the purchase price of the property.
100 percent + full additional costs financing:
In the case of 100 percent + ancillary cost financing, the financing covers both the purchase price and the incidental costs incurred. Among the incidental expenses include 6.5% land transfer (in SH), 2.2-2.5% notary and legal expenses, as well as 3.57 to 5.95% brokerage costs.
Often you can also find the term “chimney financing” because it is financed beyond the “roof ridge”.
107.5 percent financing:
The “107.5-percent funding” is called low-equity financing. In Good Finance, owners with equity capital of 7.5% can even receive attractive financing in combination with the Good Finance Investment. Ask us about this special constellation.
Even if it is possible to finance a property with low equity, you should take a closer look at the potential risks and take intensive advice.
Conditions for real estate financing without equity
Anyone seeking real estate financing without or with low equity capital should fulfill certain requirements. You should have a good credit rating and proof of a secure job.
Self-employed persons often have significantly worse chances of obtaining full financing from the bank, as they usually have a fluctuating income. In addition, some banks require additional collateral such as guarantees or death protection for the borrower.
Only if you are able to handle the high repayments over a longer period, you should opt for financing with no or low equity. The high repayment rates can be explained by the higher default risk of mortgage loans in financing without equity.
This risk can be paid by credit institutions with interest premiums. The less own capital you bring in, the higher these will be.
Risks of mortgage lending without equity
Before you decide, you should take a detailed look at the risks. One of the biggest risks you face is a foreclosure or a distress sale. If the case arises and you come into the situation that you must sell your property early, you probably remain on the remaining debt.
In addition, you should be aware of existential risks such as Ensure job loss, occupational disability as well as illness or death of the main earner. Feel free to join us as an independent consultant, we are happy to assist you!
With the help of our budget calculator, you can get an overview of your budget at an early stage. So you know exactly what sum is available to you for your property and what costs are coming to you.
The calculation takes into account all ancillary costs such as notary fees, land registry fees, land transfer tax, brokerage commissions, and modernization costs. In the end, the equity that you want to contribute to your project is added.